Lesson Summary 004

Cryptocurrency & Taxation

Cryptocurrency tax laws vary significantly between countries. As for cryptocurrency tax in Australia, the ATO has comprehensive tax guidance on cryptocurrency buying and selling.

Basic tax principles apply to your cryptocurrency holdings. That is, you’re required to record gains and losses when you sell your cryptocurrency. Capital gains tax (CGT) refers to the income tax you pay on any net capital gain you make and include in your annual tax return.

Cryptocurrency tax treatment differs between individual investors, businesses and traders. There is no fixed tax rate on cryptocurrency gains.

Australian individual investors must report capital gains or losses as a CGT on their income tax return. You may not need to report CGT on personal purchases made with cryptocurrencies.

Cryptocurrency sales by a business attract no CGT and therefore no CGT discount. For trading businesses, cryptocurrency sales are treated as assessable income and cryptocurrency buys as cost of sales.

It’s possible to be an investor and trader. For example, you may have a long-term investment portfolio and a trading portfolio of cryptocurrencies. You must clearly demonstrate that both portfolios have different intentions to ensure they are treated differently for tax purposes.

The ATO and tax professionals strongly recommend that you keep detailed records of all your cryptocurrency transactions for up to 5 years from the date you lodge your tax return. The data-matching software used by the ATO is highly capable of detecting misreporting.

When trading one currency for another, you must record the AUD-denominated values of each cryptocurrency. Where you get ‘free’ cryptocurrencies through events like airdrops and gas distributions, the cost base for tax purposes is $0.